Energy Recovery revenue drops 65% in Q3 2026
Management believes existing resources and projected cash inflows will meet liquidity needs for at least 12 months.
Sentiment and the balance of points
Rhea-AI Sentiment reads the wording of the document, how positive or negative its language is on a 1 to 5 scale. The balance of points shown with the takes weighs what the document actually discloses, so the two can disagree, for example when a trial that missed its main goal is described in upbeat language.
Form Type
10-Q
Energy Recovery, Inc. reported third-quarter 2026 revenue of $11.2 million, down 65% from $32.0 million a year earlier, and a net loss of $6.3 million, versus net income of $3.9 million. Gross margin was 37.5%, compared with 64.2%. Megaproject revenue was $934,000, down from $18.4 million, primarily reflecting lower shipments to Africa, Asia and the Middle East.
For the nine months ended September 30, revenue was $32.9 million versus $68.1 million, and net loss was $21.8 million versus $4.0 million. Operating cash flow was $28.1 million, compared with $11.7 million. The company wound down its CO2 retail grocery business, recording $2.4 million of restructuring charges, $1.6 million of inventory reserves and $1.7 million of goodwill impairment.
At September 30, 2026, cash and equivalents were $42.5 million and short- and long-term investments were $43.1 million. Management believes current projections indicate these resources and future portfolio cash inflows will meet liquidity needs for at least 12 months.
1 point · 0 major0 major · 2 points
How this balance works
Rhea-AI gives every point it takes from this document a weight. Minor counts 1, Moderate 3 and Major 9, so one Major point outweighs several Minor ones. The bar adds up the weights on each side, and when neither side holds more than 65% of the total the balance reads Mixed.
It reads the document as published, with the same rules for every company, and it does not look at what the market expected or at how the stock traded, so a point can be objectively good on a day the stock falls.
Rhea-AI Sentiment measures something else, the tone of the wording.
Positive
- Moderate pointNine-month operating cash flow rose to $28.1 million from $11.7 million.
Negative
- Moderate pointThird-quarter revenue declined 65% to $11.2 million year over year.
- Moderate pointThird-quarter net results shifted from $3.9 million income to a $6.3 million loss.
Filing Explained
Nine-month buybacks lowered the share count, while the May authorization remained optional, not promised spending.
The report identifies a
During the nine months ended
Key Figures
Third-quarter revenue: $11.2 million
Third-quarter net loss: $6.3 million loss
Gross margin: 37.5%
+5 more
8 metrics
Third-quarter revenue
$11.2 million
Three months ended September 30, 2026; $32.0 million in 2025, a 65% decrease.
Third-quarter net loss
$6.3 million loss
Three months ended September 30, 2026; $3.9 million net income in 2025.
Gross margin
37.5%
Three months ended September 30, 2026; 64.2% in 2025.
Nine-month revenue
$32.9 million
Nine months ended September 30, 2026; $68.1 million in 2025.
Nine-month net loss
$21.8 million loss
Nine months ended September 30, 2026; $4.0 million net loss in 2025.
Net cash provided by operating activities
$28.1 million
Nine months ended September 30, 2026; $11.7 million in 2025.
Cash and cash equivalents
$42.5 million
As of September 30, 2026.
Short- and long-term investments
$43.1 million
As of September 30, 2026.
Key Terms
Remaining Performance Obligations, treasury stock method, contract liabilities, weighted average maturity, +1 more
5 terms
Remaining Performance Obligations financial
"revenue that is expected to be recognized related to performance obligations"
Remaining performance obligations are the work a company still needs to complete for its customers, like finishing a service or delivering a product. It’s important because it shows how much future income the company has coming in from current agreements, giving a clearer picture of its ongoing business.
treasury stock method financial
"using the treasury stock method"
A bookkeeping technique used to estimate how many additional shares would exist if all outstanding stock options, warrants and convertible securities were exercised, assuming the company uses the cash received to buy back shares at the current market price. Investors use it to calculate diluted earnings per share and to gauge potential ownership and profit dilution—like figuring out how a pie would be divided if more people claimed slices and some money was used to buy slices back.
contract liabilities financial
"consist of customer deposits and deferred revenue"
Contract liabilities are amounts a company has been paid in advance for goods or services it still owes to customers — think of them like gift cards or prepaid subscriptions the company must fulfill later. For investors, they show promised future work or deliveries that will turn into revenue over time, reveal cash already collected, and help assess whether a firm has a backlog of obligations that could affect future earnings and cash flow.
weighted average maturity financial
"weighted average maturity of approximately four months"
Weighted average maturity is the average time until the loans or bonds in a debt portfolio are due, where each security’s maturity is counted in proportion to its size in the portfolio. Investors use it as a quick measure of how long their money is tied up and how sensitive the portfolio is to interest-rate or reinvestment risk—think of it like the average due date of bills in a household budget, weighted by how large each bill is.
anti-dilutive financial
"their effect would have been anti-dilutive"
A claim, security feature, or action described as anti-dilutive prevents or does not cause a reduction in existing shareholders’ per-share values when additional shares could be issued. For example, certain convertible securities or corporate actions are treated as anti-dilutive for earnings-per-share calculations if including them would raise EPS rather than lower it; investors watch this because it affects reported per-share metrics, ownership percentages, and valuation comparisons, like keeping pie slices the same size instead of making them smaller.
FAQ
AI-generated questions and answers. How Rhea-AI works. Not financial advice.
Why did ERII's megaproject revenue fall in Q3 2026?
ERII said the $17.5 million decrease was due primarily to lower shipments to Africa, Asia and the Middle East; megaproject revenue was $934,000 for the quarter, compared with $18.4 million a year earlier.
How much cash and investment liquidity did ERII report?
As of September 30, 2026, ERII reported $42.5 million in unrestricted cash and cash equivalents and $43.1 million in short- and long-term marketable debt instruments; management believes current projections indicate these resources and future portfolio cash inflows will meet liquidity needs for at least 12 months.
How much remains under ERII's May 2026 share repurchase authorization?
As of September 30, 2026, $21.3 million remained under ERII's May 2026 authorization, which permits repurchases up to $25.0 million in aggregate cost, including the share value and fees charged in connection with acquiring the stock. The authorization will expire in April 2027.
AI-generated analysis. How Rhea-AI works. Not financial advice.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2026
OR
For the transition period from ____________ to __________
Commission File Number: 001-34112
(Exact Name of Registrant as Specified in its Charter)
(State or Other Jurisdiction of Incorporation) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices) (Zip Code)
(510 ) 483-7370
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an
emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in
Rule 12b-2 of the Exchange Act.
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or
revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes ☐ No ☑
As of October 30, 2026, there were 50,763,193 shares of the registrant’s common stock outstanding.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q)
Table of Contents
TABLE OF CONTENTS
Page No. | ||
PART I | ||
FINANCIAL INFORMATION | ||
Item 1 | Financial Statements (Unaudited) | |
Condensed Consolidated Balance Sheets — September 30, 2026 and December 31, 2025 | 1 | |
Condensed Consolidated Statements of Operations — Three and Nine Months Ended September 30, 2026 and 2025 | 2 | |
Condensed Consolidated Statements of Comprehensive Income (Loss) — Three and Nine Months Ended September 30, 2026 and 2025 | 3 | |
Condensed Consolidated Statements of Stockholders’ Equity — Three and Nine Months Ended September 30, 2026 and 2025 | 4 | |
Condensed Consolidated Statements of Cash Flows — Nine Months Ended September 30, 2026 and 2025 | 5 | |
Notes to Condensed Consolidated Financial Statements | 6 | |
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 21 |
Item 3 | Quantitative and Qualitative Disclosures About Market Risk | 30 |
Item 4 | Controls and Procedures | 31 |
PART II | ||
OTHER INFORMATION | ||
Item 1 | Legal Proceedings | 32 |
Item 1A | Risk Factors | 32 |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 34 |
Item 3 | Defaults Upon Senior Securities | 34 |
Item 4 | Mine Safety Disclosures | 34 |
Item 5 | Other Information | 34 |
Item 6 | Exhibits | 36 |
Exhibit Index | 36 | |
Signatures | 37 | |
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | FLS 1
Table of Contents
Forward-Looking Information
This Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2026, including Part I, Item 2,
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” (the “MD&A”), contains forward-looking
statements within the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements in this
report include, but are not limited to, statements about our expectations, objectives, anticipations, plans, hopes, beliefs, intentions or
strategies regarding the future.
Forward-looking statements represent our current expectations about future events, are based on assumptions, and involve risks and
uncertainties. If the risks or uncertainties occur or the assumptions prove incorrect, then our results may differ materially from those set forth
or implied by the forward-looking statements. Our forward-looking statements are not guarantees of future performance or events.
Words such as “expects,” “anticipates,” “aims,” “projects,” “intends,” “plans,” “believes,” “estimates,” “seeks,” “continue,” “could,”
“may,” “potential,” “should,” “will,” “would,” and variations of such words and similar expressions are also intended to identify such forward-
looking statements. These forward-looking statements are subject to risks, uncertainties and assumptions that are difficult to predict;
therefore, actual results may differ materially and adversely from those expressed in any forward-looking statement. Readers are directed to
risks and uncertainties identified under Part II, Item 1A, “Risk Factors,” and elsewhere in this report for factors that may cause actual results
to be different from those expressed in these forward-looking statements. Except as required by law, we undertake no obligation to revise or
update publicly any forward-looking statement for any reason.
Forward-looking statements in this report include, without limitation, statements about the following:
•our belief that our PX offers market-leading value with the highest technological and economic benefit; |
•our belief that leveraging our pressure exchanger technology will unlock new commercial opportunities in the future; |
•our belief that our technology helps our customers achieve environmentally sustainable operations; |
•our expectation that sales outside of the U.S. will remain a significant portion of our revenue; |
•the scale of the environmental impact from the use of our solutions; |
•the timing of our receipt of payment for products or services from our customers; |
•our belief that our existing cash and cash equivalents, our short and/or long-term investments, and the ongoing cash generated from our operations, will be sufficient to meet our anticipated liquidity needs for the foreseeable future, with the exception of a decision to enter into an acquisition and/or fund investments in our latest technology arising from rapid market adoption that could require us to seek additional equity or debt financing; |
•our expectations relating to the amount and timing of recognized revenue from our projects; |
•our expectation that we will continue to receive a tax benefit related to research and development tax credit; |
•the outcome of proceedings, lawsuits, disputes and claims; |
•the impact of losses due to indemnification obligations; |
•other factors disclosed under the MD&A and Part I, Item 3, “Quantitative and Qualitative Disclosures about Market Risk,” and elsewhere in this Form 10-Q. |
You should not place undue reliance on these forward-looking statements. These forward-looking statements reflect management’s
opinions only as of the date of the filing of this Quarterly Report on Form 10-Q. All forward-looking statements included in this document are
subject to additional risks and uncertainties further discussed under Part II, Item 1A, “Risk Factors,” and are based on information available to
us as of November 4, 2026. We assume no obligation to update any such forward-looking statements. Certain risks and uncertainties could
cause actual results to differ materially from those projected in the forward-looking statements. These forward-looking statements are
disclosed from time to time in our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q and Current Reports on Form 8‑K filed
with, or furnished to, the Securities and Exchange Commission (the “SEC”), as well as in Part II, Item 1A, “Risk Factors,” within this Quarterly
Report on Form 10-Q.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | FLS 2
Table of Contents
It is important to note that our actual results could differ materially from the results set forth or implied by our forward-looking
statements. The factors that could cause our actual results to differ from those included in such forward-looking statements are set forth
under the heading Item 1A, “Risk Factors,” in our Quarterly Reports on Form 10-Q, in our Annual Reports on Form 10-K, and from time-to-
time, in our results disclosed in our Current Reports on Form 8-K. In addition, when preparing the MD&A below, we presume the readers
have access to and have read the MD&A in our Annual Report on Form 10-K, pursuant to Instruction 2 to paragraph (b) of Item 303 of
Regulation S-K.
We provide our Annual Reports on Form 10‑K, Quarterly Reports on Form 10‑Q, Current Reports on Form 8‑K, Proxy Statements on
Schedule 14A, Forms 3, 4 and 5 filed by, or on behalf of, directors, executive officers and certain large shareholders, and any amendments to
those documents filed or furnished pursuant to the Securities Exchange Act of 1934, free of charge on the Investor Relations section of our
website, www.energyrecovery.com. These filings will become available as soon as reasonably practicable after such material is
electronically filed with or furnished to the SEC. From time to time, we may use our website as a channel of distribution of material company
information.
We also make available in the Investor Relations section of our website our corporate governance documents including our code of
business conduct and ethics and the charters of the audit, compensation and nominating and governance committees. These documents, as
well as the information on the website, are not intended to be part of this Quarterly Report on Form 10-Q. We use the Investor Relations
section of our website as a means of complying with our disclosure obligations under Regulation FD. Accordingly, you should monitor the
Investor Relations section of our website in addition to following our press releases, SEC filings and public conference calls and webcasts.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 1
Table of Contents
PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements (unaudited)
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30, 2026 | December 31, 2025 | ||
(In thousands) | |||
ASSETS | |||
Current assets: | |||
Cash and cash equivalents | $ | $ | |
Short-term investments | |||
Accounts receivable, net | |||
Inventories, net | |||
Prepaid expenses and other assets | |||
Total current assets | |||
Long-term investments | |||
Deferred tax assets, net | |||
Property and equipment, net | |||
Operating lease, right of use asset | |||
Goodwill | |||
Other assets, non-current | |||
Total assets | $ | $ | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||
Current liabilities: | |||
Accounts payable | $ | $ | |
Accrued expenses and other liabilities | |||
Lease liabilities | |||
Contract liabilities | |||
Total current liabilities | |||
Lease liabilities, non-current | |||
Other liabilities, non-current | |||
Total liabilities | |||
Commitments and contingencies (Note 7) | |||
Stockholders’ equity: | |||
Common stock | |||
Additional paid-in capital | |||
Accumulated other comprehensive loss | ( | ( | |
Treasury stock | ( | ( | |
Retained earnings | |||
Total stockholders’ equity | |||
Total liabilities and stockholders’ equity | $ | $ | |
See Accompanying Notes to Condensed Consolidated Financial Statements
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 2
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2026 | 2025 | 2026 | 2025 | ||||
(In thousands, except per share data) | |||||||
Revenue | $ | $ | $ | $ | |||
Cost of revenue | |||||||
Restructuring - inventory reserve | |||||||
Gross profit | |||||||
Operating expenses: | |||||||
General and administrative | |||||||
Sales and marketing | |||||||
Research and development | |||||||
Restructuring charges | |||||||
Impairment of goodwill | |||||||
Total operating expenses | |||||||
Income (loss) from operations | ( | ( | ( | ||||
Other income (expense): | |||||||
Interest income | |||||||
Other non-operating income (expense), net | ( | ||||||
Total other income, net | |||||||
Income (loss) before income taxes | ( | ( | ( | ||||
Provision for (benefit from) income taxes | ( | ( | ( | ||||
Net income (loss) | $( | $ | $( | $( | |||
Net income (loss) per share: | |||||||
Basic | $ ( | $ | $ ( | $ ( | |||
Diluted | $ ( | $ | $ ( | $ ( | |||
Number of shares used in per share calculations: | |||||||
Basic | |||||||
Diluted | |||||||
See Accompanying Notes to Condensed Consolidated Financial Statements
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 3
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
2026 | 2025 | 2026 | 2025 | |||||
(In thousands) | ||||||||
Net income (loss) | $( | $ | $( | $( | ||||
Other comprehensive loss, net of tax | ||||||||
Foreign currency translation adjustments | ( | ( | ( | ( | ||||
Unrealized gain (loss) on investments | ( | ( | ( | |||||
Total other comprehensive loss, net of tax | ( | ( | ( | ( | ||||
Comprehensive income (loss) | $( | $ | $( | $( | ||||
See Accompanying Notes to Condensed Consolidated Financial Statements
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 4
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
2026 | 2025 | 2026 | 2025 | |||||
(In thousands, except shares) | ||||||||
Common stock | ||||||||
Beginning balance | $ | $ | $ | $ | ||||
Issuance of common stock | ||||||||
Ending balance | ||||||||
Additional paid-in capital | ||||||||
Beginning balance | ||||||||
Issuance of common stock | ||||||||
Shares held for tax withholdings | ( | ( | ( | ( | ||||
Stock-based compensation | ||||||||
Ending balance | ||||||||
Accumulated other comprehensive (loss) income | ||||||||
Beginning balance | ( | ( | ||||||
Other comprehensive loss | ||||||||
Foreign currency translation adjustments | ( | ( | ( | ( | ||||
Unrealized (loss) gain on investments | ( | ( | ( | |||||
Total other comprehensive loss, net | ( | ( | ( | ( | ||||
Ending balance | ( | ( | ||||||
Treasury stock | ||||||||
Beginning balance | ( | ( | ( | ( | ||||
Common stock repurchased | ( | ( | ( | ( | ||||
Ending balance | ( | ( | ( | ( | ||||
Retained earnings | ||||||||
Beginning balance | ||||||||
Net (loss) income | ( | ( | ( | |||||
Ending balance | ||||||||
Total stockholders’ equity | $ | $ | $ | $ | ||||
Common stock issued (shares) | ||||||||
Beginning balance | ||||||||
Issuance of common stock | ||||||||
Ending balance | ||||||||
Treasury stock (shares) | ||||||||
Beginning balance | ||||||||
Common stock repurchased | ||||||||
Ending balance | ||||||||
Total common stock outstanding (shares) | ||||||||
Beginning Balance | ||||||||
Issuance of common stock | ||||||||
Common stock repurchased | ( | ( | ( | ( | ||||
Ending Balance | ||||||||
See Accompanying Notes to Condensed Consolidated Financial Statements
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 5
ENERGY RECOVERY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, | |||
2026 | 2025 | ||
(In thousands) | |||
Cash flows from operating activities: | |||
Net loss | $( | $( | |
Adjustments to reconcile net loss to cash provided by (used in) operating activities | |||
Stock-based compensation | |||
Depreciation and amortization | |||
Accretion (amortization) of discounts (premiums) on investments | ( | ( | |
Deferred income taxes | ( | ( | |
Impairment of long-lived assets | |||
Impairment of goodwill | |||
Restructuring - inventory reserve | |||
Inventory reserve adjustment | |||
Other non-cash adjustments | ( | ( | |
Changes in operating assets and liabilities: | |||
Accounts receivable, net | |||
Contract assets | ( | ||
Inventories, net | ( | ( | |
Prepaid expenses and other assets | ( | ( | |
Accounts payable | |||
Income taxes | ( | ( | |
Accrued expenses and other liabilities | ( | ( | |
Contract liabilities | ( | ||
Net cash provided by operating activities | |||
Cash flows from investing activities: | |||
Maturities of marketable securities | |||
Purchases of marketable securities | ( | ( | |
Capital expenditures | ( | ( | |
Proceeds from sales of fixed assets | |||
Net cash (used in) provided by investing activities | ( | ||
Cash flows from financing activities: | |||
Net proceeds from issuance of common stock | |||
Tax payment for employee shares withheld | ( | ( | |
Repurchase of common stock | ( | ( | |
Payment of excise tax associated with repurchase of common stock | ( | ( | |
Net cash used in financing activities | ( | ( | |
Effect of exchange rate differences on cash and cash equivalents | ( | ||
Net change in cash, cash equivalents and restricted cash | ( | ||
Cash, cash equivalents and restricted cash, beginning of year | |||
Cash and cash equivalents, end of period | $ | $ | |
See Accompanying Notes to Condensed Consolidated Financial Statements
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 6
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 — Description of Business and Significant Accounting Policies
Energy Recovery, Inc. and its wholly-owned subsidiaries (the “Company” or “Energy Recovery”) designs and manufactures world-
class energy-saving technology for critical infrastructure that communities rely on every day, driving a more resilient and sustainable future.
Leveraging the Company’s pressure exchanger technology, which generates little to no emissions when operating, the Company believes its
solutions lower costs, save energy, reduce waste, and minimize emissions for companies across a variety of commercial and industrial
processes. As the world coalesces around the urgent need to address climate change and its impacts, the Company is helping companies
reduce their energy consumption in their industrial processes, which in turn, reduces their carbon footprint. The Company believes that its
customers do not have to sacrifice quality and cost savings for sustainability and the Company is committed to developing solutions that drive
long-term value – both financial and environmental. The Company’s solutions are marketed, sold in, and developed for, the fluid-flow and
gas markets, such as seawater and wastewater desalination, natural gas, chemical processing and CO2-based refrigeration systems, under
the trademarks ERI®, PX®, Pressure Exchanger®, PX® Pressure Exchanger® (“PX”), Ultra High-Pressure PX, PX G™, PX G1300®,
PX PowerTrain™, AT™, and Aquabold™. The Company owns, manufactures and/or develops its solutions, in whole or in part, in the United
States of America (the “U.S.”).
All intercompany accounts and transactions have been eliminated in consolidation.
Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures normally included in the financial statements
prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such rules
and regulations. The December 31, 2025 Condensed Consolidated Balance Sheet was derived from audited financial statements and may
not include all disclosures required by GAAP; however, the Company believes that the disclosures are adequate to make the information
presented not misleading.
The September 30, 2026 unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited
Consolidated Financial Statements and the notes thereto for the fiscal year ended December 31, 2025 included in the Company’s Annual
Report on Form 10-K filed with the SEC on February 25, 2026 (the “2025 Annual Report”).
future periods.
to the current period presentation.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 7
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
make judgments, assumptions and estimates that affect the amounts reported in the Condensed Consolidated Financial Statements and
accompanying notes.
The accounting policies that reflect the Company’s significant estimates and judgments and that the Company believes are the most
critical to aid in fully understanding and evaluating its reported financial results are revenue recognition; stock-based compensation expense;
equipment useful life and valuation; goodwill valuation and impairment; inventory valuation and allowances, deferred taxes and valuation
allowances on deferred tax assets; and evaluation and measurement of contingencies. Those estimates could change, and as a result,
actual results could differ materially from those estimates.
The Company is not aware of any specific event or circumstance that would require an update to its estimates or judgments or a
revision of the carrying value of its assets or liabilities as of November 4, 2026, the date of issuance of this Quarterly Report on Form 10-Q.
These estimates may change, as new events occur and additional information is obtained. Actual results could differ materially from these
estimates under different assumptions or conditions. The Company undertakes no obligation to publicly update these estimates for any
reason after the date of this Quarterly Report on Form 10-Q, except as required by law.
Significant Accounting Policies - Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Item 8,
“Financial Statements and Supplementary Data,” of the 2025 Annual Report.
Credit Losses for Accounts Receivable and Contract Assets (“ASU 2025-05”). ASU 2025-05 provides a practical expedient for measuring
expected credit losses on current accounts receivables and contract assets by assuming that conditions at the balance sheet date remain
unchanged over the life of the asset. The Company adopted ASU 2025-05 on January 1, 2026 and the adoption did not have a material
impact on the Company’s results of operations, cash flows, or financial condition.
September 30, 2026 that apply to the Company other than the pronouncements disclosed in Note 1, “Description of Business and Significant
Accounting Policies - Recently Issued Accounting Pronouncements Not Yet Adopted,” of the Notes to Consolidated Financial Statements
included in Item 8, “Financial Statements and Supplementary Data,” of the 2025 Annual Report.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 8
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 2 — Revenue
customer “shipped to” address, and by channel customers. Sales and usage-based taxes are excluded from revenues. See Note 9,
“Segment Reporting,” for further discussion related to the Company’s segments.
Three Months Ended September 30, 2026 | Nine Months Ended September 30, 2026 | ||||||||||||||
Desalination | Wastewater | Corporate and Other(1) | Total | Desalination | Wastewater | Corporate and Other(1) | Total | ||||||||
(In thousands) | |||||||||||||||
Geographical market | |||||||||||||||
Middle East | $ | $ | $ | $ | $ | $ | $ | $ | |||||||
Africa | |||||||||||||||
Other | |||||||||||||||
Total revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||
Channel | |||||||||||||||
Original equipment manufacturer | $ | $ | $ | $ | $ | $ | $ | $ | |||||||
Aftermarket | |||||||||||||||
Megaproject | |||||||||||||||
Total revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||
1Corporate and Other includes amounts not allocated to segments, which includes revenue associated with what was previously the
Emerging Technologies segment.
Three Months Ended September 30, 2025 | Nine Months Ended September 30, 2025 | ||||||||||||||
Desalination | Wastewater | Corporate and Other(1) | Total | Desalination | Wastewater | Corporate and Other(1) | Total | ||||||||
(In thousands) | |||||||||||||||
Geographical market | |||||||||||||||
Middle East | $ | $ | $ | $ | $ | $ | $ | $ | |||||||
Africa | |||||||||||||||
Other | |||||||||||||||
Total revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||
Channel | |||||||||||||||
Original equipment manufacturer | $ | $ | $ | $ | $ | $ | $ | $ | |||||||
Aftermarket | |||||||||||||||
Megaproject | |||||||||||||||
Total revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||
1Corporate and Other includes amounts not allocated to segments, which includes revenue associated with what was previously the
Emerging Technologies segment.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 9
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ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
September 30, 2026 | December 31, 2025 | ||
(In thousands) | |||
Accounts receivable, net | $ | $ | |
Contract assets, current (included in prepaid expenses and other assets) | $ | $ | |
Contract liabilities: | |||
Contract liabilities, current | $ | $ | |
Total contract liabilities | $ | $ | |
The Company records contract liabilities, which consist of customer deposits and deferred revenue, when cash payments are
received in advance of the Company’s performance. The following table presents the change in contract liability balances during the reported
periods.
September 30, 2026 | December 31, 2025 | ||
(In thousands) | |||
Contract liabilities, beginning of year | $ | $ | |
Revenue recognized | ( | ( | |
Cash received, excluding amounts recognized as revenue during the period | |||
Contract liabilities, end of period | $ | $ | |
obligations that are unsatisfied or partially unsatisfied. These amounts exclude the value of remaining performance obligations for contracts
with an original expected delivery date of one year or less.
Period | Remaining Performance Obligations | |
(In thousands) | ||
2026 (remaining three months) | $ | |
2027 | ||
2028 | ||
2029 | ||
Total | $ |
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 10
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ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 3 — Income (Loss) Per Share
during the reported period to calculate the basic and diluted income (loss) per share, respectively. Outstanding stock options to purchase
common shares, unvested restricted stock units (“RSUs”), and unvested performance restricted stock units (“PRSUs”) are collectively
referred to as “equity awards.”
•Basic income (loss) per share is computed using the weighted average number of common shares outstanding during the period.
•Diluted income (loss) per share is computed using the weighted average number of common and potentially dilutive shares
outstanding during the period, using the treasury stock method. Any anti-dilutive effect of equity awards outstanding is not
included in the computation of diluted income (loss) per share.
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
2026 | 2025 | 2026 | 2025 | |||||
(In thousands, except per share amounts) | ||||||||
Numerator | ||||||||
Net income (loss) | $( | $ | $( | $( | ||||
Denominator (weighted average shares) | ||||||||
Basic common shares outstanding | ||||||||
Stock options | ||||||||
RSUs | ||||||||
Diluted common shares outstanding | ||||||||
Income (Loss) Per Share | ||||||||
Basic | $ ( | $ | $ ( | $ ( | ||||
Diluted | $ ( | $ | $ ( | $ ( | ||||
have been anti-dilutive, or (ii) the equity awards were contingent upon conditions for issuance which were not satisfied as of September 30,
2026.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2026 | 2025 | 2026 | 2025 | ||||
(In thousands) | |||||||
Anti-dilutive equity award shares | |||||||
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 11
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 4 — Other Financial Information
September 30, 2026 | December 31, 2025 | ||
(In thousands) | |||
Raw materials | $ | $ | |
Work in process | |||
Finished goods | |||
Inventories, gross | |||
Valuation adjustments for excess and obsolete inventory | ( | ( | |
Inventories, net | $ | $ | |
Goodwill is tested for impairment annually in the third quarter of the Company’s fiscal year or more frequently if indicators of potential
impairment exist. The Company monitors the industries in which it operates and reviews its business performance for indicators of potential
due to a fundamental change in the outlook of the business. The Company considered the wind down to be an indicator of impairment and
performed a quantitative impairment test using the discounted cash flow approach and market approach. Based on the results of the
analysis, the Company determined that the carrying value of the reporting unit exceeded its fair value and recorded an impairment charge of
$1.7 million during the nine months ended September 30, 2026. No impairment charges were recorded during the three months ended
September 30, 2026.
September 30, 2026 | December 31, 2025 | ||
(In thousands) | |||
Accrued expenses and other liabilities, current | |||
Payroll, benefits, incentives and commissions payable | $ | $ | |
Warranty reserve | |||
Restructuring accrual | |||
Income taxes payable | |||
Other accrued expenses and other liabilities | |||
Total accrued expenses and other liabilities | |||
Other liabilities, non-current | |||
Total accrued expenses, and current and non-current other liabilities | $ | $ | |
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 12
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ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
the G&A function, in order to lower the Company’s operating cost structure, and to position the Company for profitable growth. The Company
recorded a restructuring charge of approximately $2.8 million in total, of which $0.5 million was recorded during the nine months ended
September 30, 2025. No restructuring charges were recorded during the three months ended September 30, 2025. The total restructuring
charge recorded relates to severance and benefits, including reemployment assistance, for 38 terminated employees, which was
approximately 15 % of the Company’s workforce. The restructuring plan was complete as of December 31, 2025. All expenses associated
with the Company’s restructuring plan are included in “Restructuring charges” in the Condensed Consolidated Statements of Operations.
During the first quarter of fiscal year 2026, the Company wound down operations of the CO2 retail grocery business within its
Emerging Technologies segment due to a fundamental change in the outlook of the business. The Company recorded a restructuring charge
of approximately $2.4 million during the nine months ended September 30, 2026. No restructuring charges were recorded during the three
months ended September 30, 2026. The restructuring charge recorded relates to severance and benefits, including reemployment
assistance, for 23 terminated employees. In addition, during the nine months ended September 30, 2026, the Company incurred other related
charges associated with the wind down of the CO2 retail grocery business, including excess and obsolescence reserves taken on CO2
inventory of approximately $1.6 million and impairment of goodwill of approximately $1.7 million, which are included in “Restructuring -
inventory reserve” and “Impairment of goodwill” in the Condensed Consolidated Statements of Operations, respectively. The Company did
section Goodwill within this footnote for additional information. The restructuring plan was substantially complete by the end of the second
quarter of fiscal year 2026 and the Company does not expect to incur significant additional expenses related to the restructuring.
and other liabilities on the Condensed Consolidated Balance Sheets, during the nine months ended September 30, 2026:
Severance and Benefits | |
(In thousands) | |
Balance, as of December 31, 2024 | $ |
Restructuring provision, net of adjustments | |
Cash paid | ( |
Balance, as of December 31, 2025 | $ |
Restructuring provision | |
Cash paid | ( |
Balance, as of September 30, 2026 | $ |
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 13
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 5 — Investments and Fair Value Measurements
category, amortized cost and fair value. Gross unrealized gains and losses were not material for the periods presented. As of September 30,
2026 and December 31, 2025, the Company had no no
September 30, 2026 | December 31, 2025 | ||||||||
Pricing Category | Amortized Cost | Fair Value | Amortized Cost | Fair Value | |||||
(In thousands) | |||||||||
Cash equivalents | |||||||||
Money market securities | Level 1 | $ | $ | $ | $ | ||||
U.S. treasury securities | Level 2 | ||||||||
Total cash equivalents | |||||||||
Short-term investments | |||||||||
U.S. treasury securities | Level 2 | ||||||||
Corporate notes and bonds | Level 2 | ||||||||
Total short-term investments | |||||||||
Long-term investments | |||||||||
U.S. treasury securities | Level 2 | ||||||||
Corporate notes and bonds | Level 2 | ||||||||
Total long-term investments | |||||||||
Total short and long-term investments | |||||||||
Total | $ | $ | $ | $ | |||||
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 14
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 6 — Lines of Credit
The Company entered into a credit agreement with JPMorgan Chase Bank, N.A. on December 22, 2021 (as amended, the “Credit
Agreement”). The Credit Agreement was amended on January 21, 2026 to extend the expiration date from December 21, 2026 to
January 21, 2031. The Credit Agreement provides a committed revolving credit line of $50.0 million and includes both a revolving loan and a
letters of credit (“LCs”) component.
Under the Credit Agreement, as of September 30, 2026, there were no revolving loans outstanding. In addition, under the LCs
component, as of September 30, 2026 and December 31, 2025, the Company utilized $20.0 million and $20.4 million, respectively, of the
maximum allowable credit line of $30.0
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 15
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 7 — Commitments and Contingencies
On March 10, 2025, the Company entered into an agreement to sublease its Katy, Texas operating lease. The sublease commenced
on March 10, 2025 and will expire on December 31, 2029. The sublease is classified as an operating lease and has a remaining lease term
of 3.3 years as of September 30, 2026. Sublease income was immaterial during the nine months ended September 30, 2026 and 2025, and
is recorded as a reduction of lease expense in “General and administrative” within the Company’s Condensed Consolidated Statements of
Operations.
The Company considered the sublease to be an indicator of impairment of the original lease. The Company compared the
undiscounted cash flows from the sublease to the carrying value of the Katy, Texas operating lease, which included the associated right-of-
use asset and leasehold improvements. The Company concluded that the carrying value was not recoverable as it exceeded the estimated
undiscounted cash flows.
The Company calculated the impairment charge by comparing the carrying value of the Katy, Texas operating lease to its fair value,
which was calculated based on the net discounted cash flows associated with the sublease. The Company recorded a total impairment
charge of $0.4 million during the nine months ended September 30, 2025, of which $0.2 million and $0.2 million was recorded against the
right-of-use asset and the associated leasehold improvements, respectively. No impairment charges were incurred during the three months
ended September 30, 2025. The allocation of the impairment charge was based on the relative carrying value of the assets. The impairment
charge was recorded in “General and administrative” within the Company’s Condensed Consolidated Statements of Operations.
From time-to-time, the Company has been named in and subject to various proceedings and claims in connection with its business.
The Company may in the future become involved in litigation in the ordinary course of business, including litigation that could be material to
its business. The Company considers all claims, if any, on a quarterly basis and, based on known facts, assesses whether potential losses
are considered reasonably possible, probable and estimable. Based upon this assessment, the Company then evaluates disclosure
requirements and whether to accrue for such claims in its consolidated financial statements. The Company records a provision for a liability
when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are
reviewed at least quarterly and are adjusted to reflect the impacts of negotiations, settlements, rulings, advice of legal counsel and other
proceedings or claims that would have a material effect on the Company’s financial position, results of operations, or cash flows. Therefore,
there were no material losses which were probable or reasonably estimable and accordingly, the Company did not
litigation as of September 30, 2026 and December 31, 2025.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 16
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ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 8 — Income Taxes
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2026 | 2025 | 2026 | 2025 | ||||
(In thousands, except percentages) | |||||||
Provision for (benefit from) income taxes | $( | $ | $( | $( | |||
Discrete items | ( | ( | ( | ||||
Provision for (benefit from) income taxes, excluding discrete items | $( | $ | $( | $( | |||
Effective tax rate | |||||||
Effective tax rate, excluding discrete items | |||||||
for discrete items, if any, that arise during the period. Each quarter, the Company updates its estimate of the annual effective tax rate, and if
the estimated annual effective tax rate changes, the Company makes a cumulative adjustment in such period. The Company’s quarterly tax
provision and estimate of its annual effective tax rate are subject to variation due to several factors, including variability in accurately
predicting its pre-tax income or loss and the mix of jurisdictions to which they relate, the applicability of special tax regimes, and changes in
how the Company does business.
For the three and nine months ended September 30, 2026, the recognized benefit from income taxes resulted from the tax projection
based on the full year forecast and included benefits related to the U.S. federal research and development (“R&D”) tax credit, reduced by
certain permanent differences, such as non-deductible stock-based compensation as well as an increase in the California valuation
allowance for California R&D tax credits.
For the three and nine months ended September 30, 2025, the recognized provision for and (benefit from) income taxes, respectively,
resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. federal foreign-derived
intangible income (“FDII”), federal R&D tax credit, certain permanent differences, such as stock-based compensation shortfalls, and partial
release of California valuation allowance.
The effective tax rate excluding discrete items for the three months ended September 30, 2026, as compared to the prior year,
differed primarily due to a change in the full year forecast for 2026, with the projection that the Company will not generate any tax incentives
from the U.S. federal foreign-derived intangible income (“FDDEI”), previously called “FDII”, in 2026, combined with non-deductible expenses,
most of which relates to non-deductible stock-based compensation.
The effective tax rate excluding discrete items for the nine months ended September 30, 2026, as compared to the prior year,
differed primarily due to the projection that the Company will not generate the FDDEI deduction in 2026 due to the Company’s change in the
full year forecast.
On July 4, 2025, the One Big Beautiful Bill (“OBBBA”) Act, which includes a broad range of tax reform provisions, was signed into law
in the United States. During the three and nine months ended September 30, 2026, the Company recorded its best estimate of the impact of
the OBBBA on the income tax provision. The Company will continue to evaluate the elections available within the OBBBA, which may impact
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 17
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ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 9 — Segment Reporting
The Company’s Chief Operating Decision-Maker (“CODM”) is its Interim President and Chief Executive Officer. The Company
continues to monitor and review its segment reporting structure in accordance with authoritative guidance to determine whether any changes
reflect how the CODM manages the business. During the first quarter of fiscal 2026, the Water segment was separated into two segments,
the Desalination segment and the Wastewater segment, as both met the criteria of a reportable segment. During the first quarter of fiscal
2026, the CO2 retail grocery business within the Emerging Technologies segment was wound-down, which resulted in the Emerging
Technologies segment no longer meeting the criteria of a reportable segment as of the second quarter of fiscal 2026. As a result, revenue
and expenses associated with the former Emerging Technologies segment have been included within Corporate and Other. Prior periods
have been recast to conform to the current year presentation. The recast of prior year information had no impact on the Company’s
Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, Condensed Consolidated Statements of
Comprehensive Income (Loss) and Condensed Consolidated Statements of Cash Flows.
Income and type of expense activities that are included in the Desalination, Wastewater and Corporate and Other are as follows:
Desalination segment: The continued development, sales and support of the PX, hydraulic turbochargers and pumps used in
seawater desalination treatment facilities.
Wastewater segment: The continued development, sales and support of the PX, hydraulic turbochargers and pumps used in
wastewater treatment facilities.
Corporate and Other: Corporate and Other includes certain unallocated expenses outside of the operating segments, such as
audit and accounting services, legal services, board of director fees and expenses, human resources activities, information
systems activities and other separately managed general expenses not related to the identified segments. In addition,
Corporate and Other includes the development costs, sales and support of activities related to Emerging Technologies as this
segment no longer met the criteria of a reportable segment.
and corporate operating expenses.
Three Months Ended September 30, 2026 | Nine Months Ended September 30, 2026 | ||||||||||||||
Desalination | Wastewater | Corporate and Other | Total | Desalination | Wastewater | Corporate and Other | Total | ||||||||
(In thousands) | |||||||||||||||
Revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||
Cost of revenue | |||||||||||||||
Restructuring - inventory reserve | |||||||||||||||
Gross profit (loss) | ( | ( | |||||||||||||
Operating expenses | |||||||||||||||
General and administrative | |||||||||||||||
Sales and marketing | |||||||||||||||
Research and development | |||||||||||||||
Restructuring charges | |||||||||||||||
Impairment of goodwill | |||||||||||||||
Total operating expenses | |||||||||||||||
Operating loss | $( | $( | $( | $( | $( | $( | $( | $( | |||||||
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 18
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ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three Months Ended September 30, 2025 | Nine Months Ended September 30, 2025 | ||||||||||||||
Desalination | Wastewater | Corporate and Other | Total | Desalination | Wastewater | Corporate and Other | Total | ||||||||
(In thousands) | |||||||||||||||
Revenue | $ | $ | $ | $ | $ | $ | $ | $ | |||||||
Cost of revenue | |||||||||||||||
Gross profit (loss) | ( | ( | |||||||||||||
Operating expenses | |||||||||||||||
General and administrative | |||||||||||||||
Sales and marketing | |||||||||||||||
Research and development | |||||||||||||||
Restructuring charges | |||||||||||||||
Total operating expenses | |||||||||||||||
Operating income (loss) | $ | $( | $( | $ | $ | $( | $( | $( | |||||||
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 19
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ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 10 — Concentrations
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
2026 | 2025 | 2026 | 2025 | |||||
Product revenue by country:(1) | ||||||||
Morocco | ** | ** | ||||||
Egypt | ** | ** | ** | |||||
India | ** | ** | ||||||
Saudi Arabia | ** | |||||||
Spain | ** | ** | ** | |||||
China | ** | ** | ** | |||||
Others(2) | ||||||||
Total | ||||||||
**Zero or less than 10%.
(1)Countries representing 10% or more of product revenues for the periods presented.
(2)Countries in the aggregate, individually representing less than 10% of product revenues for the periods presented.
each of the periods presented. Although certain customers might account for greater than 10% of the Company’s revenue at any one point in
time, the concentration of revenue between a limited number of customers shifts regularly, depending on when revenue is recognized. The
percentages by customer reflect specific relationships or contracts that would concentrate revenue for the periods presented and do not
indicate a trend specific to any one customer.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||
Segment | 2026 | 2025 | 2026 | 2025 | |||||
Customer A | Desalination | ** | ** | ||||||
Customer B | Desalination | ** | ** | ** | |||||
Customer C | Desalination | ** | ** | ** | |||||
**Zero or less than 10%.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 20
Table of Contents
ENERGY RECOVERY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 11 — Stockholders’ Equity
discretion of management, repurchase its outstanding common stock in the open market, or in privately negotiated transactions, in
compliance with applicable state and federal securities laws. The timing and amounts of any purchase under the Company’s share
repurchase programs is based on market conditions and other factors including price, regulatory requirements, and capital availability. The
Company accounts for stock repurchases under these programs using the cost method. As of September 30, 2026, the Company has
repurchased 16,204,712 shares of its common stock at an aggregate cost of $189.1 million under all share repurchase programs.
On February 26, 2025, the Company announced that the Board authorized a share repurchase program under which the Company
may repurchase its outstanding common stock, at the discretion of management, for up to $30.0 million in aggregate cost, which includes
both the share value of the acquired common stock and the fees charged in connection with acquiring the common stock (the “February 2025
Authorization”). On August 19, 2025, the Company concluded all share repurchases under the February 2025 Authorization. Under the
February 2025 Authorization, the Company repurchased 2,183,648 shares at an aggregate cost of $30.0 million.
On August 6, 2025, the Company announced that the Board authorized a share repurchase program under which the Company may
repurchase its outstanding common stock, at the discretion of management, for up to $25.0 million in aggregate cost, which includes both the
share value of the acquired common stock and the fees charged in connection with acquiring the common stock (the “August 2025
Authorization”). The August 2025 Authorization expired in May 2026. Under the August 2025 Authorization, the Company repurchased
Of the 2,179,419 shares purchased, 1,792,853 were purchased during the nine months ended September 30, 2026 for $19.3 million.
On May 6, 2026, the Company announced that the Board authorized a share repurchase program under which the Company may
repurchase its outstanding common stock, at the discretion of management, for up to $25.0 million in aggregate cost, which includes both the
share value of the acquired common stock and the fees charged in connection with acquiring the common stock (the “May 2026
Authorization”). The May 2026 Authorization will expire in April 2027. The Company began to purchase under the May 2026 Authorization in
May 2026.
Number of Shares Purchased | Average Price Paid per Share(1) | Plan Activity | |||||
(In millions) | |||||||
May 2026 Authorization | $ | ||||||
Repurchases under May 2026 Authorization | $ | ( | |||||
Remaining amount under May 2026 Authorization | $ |
(1)Excluding commissions
Of the 444,600 shares purchased, 287,700 and 444,600 were purchased during the three and nine months ended September 30,
2026 for $2.4 million and $3.7 million, respectively.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 21
Table of Contents
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Overview
Energy Recovery, Inc. (the “Company”, “Energy Recovery”, “we”, “our” and “us”) designs and manufactures solutions that make
industrial processes more efficient and sustainable. Leveraging our pressure exchanger technology, which generates little to no emissions
when operating, we believe our solutions lower costs, save energy, reduce waste, and minimize emissions for companies across a variety of
commercial and industrial processes. As the world coalesces around the urgent need to address climate change and its impacts, we are
helping companies reduce their energy consumption in their industrial processes, which in turn, reduces their carbon footprint. We believe
that our customers do not have to sacrifice quality and cost savings for sustainability and we are committed to developing solutions that drive
long-term value – both financial and environmental.
The original product application of our technology, the PX® Pressure Exchanger® (“PX”) energy recovery device, was a major
contributor to the advancement of seawater reverse osmosis desalination (“SWRO”), significantly lowering the energy intensity and cost of
water production globally from SWRO. Our pressure exchanger technology is being applied to the wastewater filtration market, such as
battery manufacturers, mining operations, municipalities, and other manufacturing plants that discharge wastewater with significant levels of
metals and pollutants.
Engineering, and research and development (“R&D”), have been, and remain, an essential part of our history, culture and corporate
strategy. Since our formation, we have developed leading technology and engineering expertise through the continual evolution of our
pressure exchanger technology, which can enhance environmental sustainability and improve productivity by reducing waste and energy
consumption in high-pressure industrial fluid-flow systems. This versatile technology works as a platform to build product applications and is
at the heart of many of our products. In addition, we have engineered and developed ancillary devices, such as our hydraulic turbochargers
and circulation “booster” pumps, that complement our energy recovery devices.
Segments
Our reportable operating segments consist of the Desalination and Wastewater segments. These segments are based on the
industries in which the technology solutions are sold, the type of energy recovery device or other technology sold and the related solution and
service. Other factors for determining the reportable operating segments include the manner in which our Chief Operating Decision Maker
(“CODM”), our Interim President and Chief Executive Officer, evaluates our performance combined with the nature of the individual business
activities. In addition, our Corporate and Other include expenditures in support of the Desalination and Wastewater segments, as well as
revenue and expenditures associated with the former Emerging Technologies segment. We continue to monitor and review our segment
reporting structure in accordance with authoritative guidance to determine whether any changes have occurred that would impact our
reportable segments.
During the nine months ended September 30, 2026, we changed the composition of our reportable segments to reflect the change in
how the CODM manages the business. During the first quarter of fiscal 2026, the Water segment was separated into two segments, the
Desalination segment and the Wastewater segment. During the first quarter of fiscal 2026, the CO2 retail grocery business within the
Emerging Technologies segment was wound-down, which resulted in the Emerging Technologies segment no longer meeting the criteria of a
reportable segment as of the second quarter of fiscal 2026. As a result, revenue and expenses associated with the former Emerging
Technologies segment have been included within Corporate and Other. Prior periods have been recast to conform to the current year
presentation.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 22
Table of Contents
Results of Operations
A discussion regarding our financial condition and results of operations for the three and nine months ended September 30, 2026,
compared to the three and nine months ended September 30, 2025, is presented below.
Revenue
As a significant portion of our revenue is derived from large project contract deliveries that are up to 36 months from contract date,
variability in revenue from quarter to quarter is typical, therefore year-on-year comparisons are not necessarily indicative of the trend for the
full year due to these variations. There is no specific seasonality in our revenues to highlight.
Revenue by Channel Customers
Three Months Ended September 30, | |||||||||||
2026 | 2025 | ||||||||||
Revenue | % of Revenue | Revenue | % of Revenue | Change | |||||||
(In thousands, except percentages) | |||||||||||
Original equipment manufacturer | $6,222 | 56% | $8,962 | 28% | $(2,740) | (31%) | |||||
Aftermarket | 4,040 | 36% | 4,638 | 14% | (598) | (13%) | |||||
Megaproject | 934 | 8% | 18,400 | 58% | (17,466) | (95%) | |||||
Total revenue | $11,196 | 100% | $32,000 | 100% | $(20,804) | (65%) | |||||
Nine Months Ended September 30, | |||||||||||
2026 | 2025 | ||||||||||
Revenue | % of Revenue | Revenue | % of Revenue | Change | |||||||
(In thousands, except percentages) | |||||||||||
Original equipment manufacturer | $17,988 | 55% | $21,320 | 31% | $(3,332) | (16%) | |||||
Aftermarket | 10,906 | 33% | 13,558 | 20% | (2,652) | (20%) | |||||
Megaproject | 4,004 | 12% | 33,238 | 49% | (29,234) | (88%) | |||||
Total revenue | $32,898 | 100% | $68,116 | 100% | $(35,218) | (52%) | |||||
Revenue Attributable to Primary Geographical Markets by Segments
Three Months Ended September 30, | |||||||||||||||
2026 | 2025 | ||||||||||||||
Desalination | Wastewater | Corporate and Other | Total | Desalination | Wastewater | Corporate and Other | Total | ||||||||
(In thousands) | |||||||||||||||
Middle East | $3,898 | $27 | $— | $3,925 | $6,194 | $168 | $— | $6,362 | |||||||
Africa | 326 | — | — | 326 | 10,323 | — | — | 10,323 | |||||||
Other | 6,469 | 449 | 27 | 6,945 | 12,593 | 2,650 | 72 | 15,315 | |||||||
Total revenue | $10,693 | $476 | $27 | $11,196 | $29,110 | $2,818 | $72 | $32,000 | |||||||
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 23
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Nine Months Ended September 30, | |||||||||||||||
2026 | 2025 | ||||||||||||||
Desalination | Wastewater | Corporate and Other | Total | Desalination | Wastewater | Corporate and Other | Total | ||||||||
(In thousands) | |||||||||||||||
Middle East | $12,486 | $27 | $77 | $12,590 | $16,483 | $168 | $93 | $16,744 | |||||||
Africa | 997 | — | — | 997 | 12,238 | — | — | 12,238 | |||||||
Other | 17,600 | 1,563 | 148 | 19,311 | 33,648 | 5,294 | 192 | 39,134 | |||||||
Total revenue | $31,083 | $1,590 | $225 | $32,898 | $62,369 | $5,462 | $285 | $68,116 | |||||||
Three months ended September 30, 2026, as compared to the three months ended September 30, 2025
The decrease in Original Equipment Manufacturer (“OEM”) revenue of $2.7 million was due primarily to:
•Desalination: The decrease in revenue of $0.3 million was due primarily to lower shipments of products to the America and Africa
markets, partially offset by higher shipments of products to the Europe, Asia, and Middle East markets.
•Wastewater: The decrease in revenue of $2.4 million was due primarily to lower shipments of products to the Asia and Europe
markets.
The decrease in After Market (“AM”) revenue of $0.6 million was due primarily to lower shipment of products to the Africa market.
The decrease in Megaproject (“MPD”) revenue of $17.5 million was due primarily to lower shipments of products to the Africa, Asia,
and Middle East markets.
Nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025
The decrease in OEM revenue of $3.3 million was due primarily to:
•Desalination: The increase in revenue of $0.5 million was due primarily to higher shipments of products to the Europe and Middle
East markets, partially offset by lower shipments of products to the Asia and Africa markets.
•Wastewater: The decrease in revenue of $3.8 million was due primarily to lower shipments of products to the Asia and Europe
markets.
The decrease in AM revenue of $2.7 million was primarily due to lower shipments to the Asia, Europe, and Africa markets.
The decrease in MPD revenue of $29.2 million was due primarily to lower shipments to the Asia, Africa, Europe and Middle East
markets.
Concentration of Revenue
See Note 10, “Concentrations,” of the Notes to Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements
(unaudited),” of this Quarterly Report on Form 10-Q (the “Notes”) for further discussion regarding our concentration of revenue.
Gross Profit and Gross Margin
Gross profit represents revenue less cost of revenue and restructuring - inventory reserve. Cost of revenue consists primarily of raw
materials, personnel costs (including stock-based compensation), manufacturing overhead, warranty costs, and depreciation expense.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 24
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Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2026 | 2025 | Change | 2026 | 2025 | Change | ||||||
(In thousands, except percentage and basis point) | |||||||||||
Gross profit | $4,197 | $20,558 | $(16,361) | $15,856 | $42,970 | $(27,114) | |||||
Gross margin | 37.5% | 64.2% | (2,670) bps | 48.2% | 63.1% | (1,490) bps | |||||
The decrease in gross profit and gross margin for the three months ended September 30, 2026, as compared to the prior year, was
due primarily to lower volume as well as product mix and indirect manufacturing costs, partially offset by channel mix.
The decrease in gross profit and gross margin for the nine months ended September 30, 2026, as compared to the prior year, was
due primarily to lower volume as well as $1.6 million of restructuring charges booked to inventory associated with the wind down of the CO2
retail grocery business, partially offset by product and channel mix.
Operating Expenses
The total material changes of general and administrative (“G&A”), sales and marketing (“S&M”) and R&D operating expenses for the
three and nine months ended September 30, 2026, as compared to the comparable periods in the prior year, are discussed within the
following overall operating expenditures, and the segment and corporate operating expenses discussions below.
Three Months Ended September 30, | |||||||||||||||
2026 | 2025 | ||||||||||||||
Desalination | Wastewater | Corporate and Other | Total | Desalination | Wastewater | Corporate and Other | Total | ||||||||
(In thousands) | |||||||||||||||
Operating expenses | |||||||||||||||
General and administrative | $1,621 | $208 | $4,883 | $6,712 | $719 | $699 | $6,096 | $7,514 | |||||||
Sales and marketing | 2,678 | 1,051 | 436 | 4,165 | 2,539 | 1,165 | 2,010 | 5,714 | |||||||
Research and development | 1,391 | 284 | 1,440 | 3,115 | 1,659 | 161 | 1,848 | 3,668 | |||||||
Total operating expenses | $5,690 | $1,543 | $6,759 | $13,992 | $4,917 | $2,025 | $9,954 | $16,896 | |||||||
Three months ended September 30, 2026, as compared to the three months ended September 30, 2025
Overall Operating Expenditures. Overall operating expenditures decreased $2.9 million, or (17.2%). This decrease was primarily due
to lower employee compensation costs, including stock-based compensation expense, and lower consulting costs.
Desalination Segment. Desalination segment operating expenses increased by $0.8 million, or 15.7%. This increase was primarily
due to higher product development costs.
Wastewater Segment. Wastewater segment operating expenses decreased by $0.5 million, or (23.8%). This decrease was primarily
due to lower employee compensation costs, including stock-based compensation expense.
Corporate and Other. Corporate and Other decreased by $3.2 million, or (32.1)%. This decrease was primarily due to lower
employee compensation costs, including stock-based compensation expense and consulting costs.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 25
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Nine Months Ended September 30, | |||||||||||||||
2026 | 2025 | ||||||||||||||
Desalination | Wastewater | Corporate and Other | Total | Desalination | Wastewater | Corporate and Other | Total | ||||||||
(In thousands) | |||||||||||||||
General and administrative | $3,402 | $2,061 | $14,505 | $19,968 | $2,352 | $1,962 | $19,443 | $23,757 | |||||||
Sales and marketing | 7,616 | 3,423 | 2,581 | 13,620 | 6,830 | 3,299 | 5,851 | 15,980 | |||||||
Research and development | 5,398 | 682 | 2,673 | 8,753 | 3,878 | 724 | 5,518 | 10,120 | |||||||
Restructuring charges | 335 | 18 | 2,038 | 2,391 | 107 | 103 | 329 | 539 | |||||||
Impairment of goodwill | — | — | 1,662 | 1,662 | — | — | — | — | |||||||
Total operating expenses | $16,751 | $6,184 | $23,459 | $46,394 | $13,167 | $6,088 | $31,141 | $50,396 | |||||||
Nine months ended September 30, 2026, as compared to the nine months ended September 30, 2025
Overall Operating Expenditures. Overall operating expenditures decreased by $4.0 million, or (7.9%). This decrease was primarily
due to lower employee compensation costs, including stock-based compensation expense, and lower consulting costs, and was partially
offset by impairment of goodwill and restructuring charges incurred as part of the wind down of the CO2 retail grocery business.
Desalination Segment. Desalination segment related operating expenses increased by $3.6 million, or 27.2%. This increase was
primarily due to higher employee compensation costs, including stock-based compensation costs and higher restructuring charges.
Wastewater Segment. Wastewater segment related operating expenses increased by $0.1 million, or 1.6%. This increase was
primarily due to higher consulting costs, which was offset by lower employee compensation costs, including stock-based compensation costs.
Corporate and Other. Corporate and Other decreased by $7.7 million, or (24.7)%. This decrease was primarily due to lower
employee compensation costs, including stock-based compensation expense, lower consulting costs and lower emerging technology
development costs, partially offset by impairment of goodwill and restructuring charges incurred as part of the wind down of the CO2 retail
grocery business.
Restructuring Charges. During the first quarter of fiscal year 2026, we wound down operations of the CO2 retail grocery business within
our Emerging Technologies segment due to a fundamental change in the outlook of the business. We recorded a restructuring charge of
approximately $2.4 million during the nine months ended September 30, 2026. The total restructuring charge recorded relates to severance
and benefits, including reemployment assistance, for 23 terminated employees. In addition to the restructuring charges, we incurred other
related charges associated with the wind down of the CO2 retail grocery business, including excess and obsolescence reserves taken on CO2
inventory of approximately $1.6 million and impairment of goodwill of approximately $1.7 million, which are included in “Restructuring -
inventory reserve” and “Impairment of goodwill” in the Condensed Consolidated Statements of Operations, respectively. The restructuring
plan was substantially complete by the end of the second quarter of fiscal year 2026 and we do not expect to incur significant additional
expenses related to the restructuring.
During the fourth quarter of fiscal year 2024, we implemented a restructuring plan which included reductions in our workforce in all
functions of the organization, primarily within the G&A function, in order to lower our operating cost structure, and to position the Company for
profitable growth. We recorded total restructuring charges of approximately $2.8 million, of which $0.5 million was recorded during the nine
months ended September 30, 2025. The total restructuring charge relates to severance and benefits, including reemployment assistance, for
38 terminated employees, which was approximately 15% of our workforce. The implementation of the restructuring plan was complete as of
December 31, 2025. See Note 4, “Other Financial Information – Restructuring,” of the Notes for further discussion and disclosure on our
restructuring program.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 26
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Other Income, Net
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2026 | 2025 | 2026 | 2025 | ||||
(In thousands) | |||||||
Interest income | $683 | $847 | $2,088 | $2,860 | |||
Other non-operating income (expense), net | (87) | 45 | 143 | 25 | |||
Total other income, net | $596 | $892 | $2,231 | $2,885 | |||
The decrease in “Total other income, net” in the three and nine months ended September 30, 2026, as compared to the comparable
period in the prior year, was primarily due to a decrease in the interest rate for short- and long-term investments.
Income Taxes
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2026 | 2025 | 2026 | 2025 | ||||
(In thousands, except percentages) | |||||||
(Benefit from) provision for income taxes | $(2,869) | $680 | $(6,528) | $(589) | |||
Discrete items | 241 | (117) | (76) | (87) | |||
(Benefit from) provision for income taxes, excluding discrete items | $(2,628) | $563 | $(6,604) | $(676) | |||
Effective tax rate | 31.2% | 14.9% | 23.1% | 13.0% | |||
Effective tax rate, excluding discrete items | 28.6% | 12.4% | 23.3% | 14.9% | |||
The interim period tax benefit from income taxes is determined using an estimate of our annual effective tax rate, adjusted for discrete
items, if any, that arise during the period. Each quarter, we update our estimate of the annual effective tax rate, and if the estimated annual
effective tax rate changes, we make a cumulative adjustment in such period. The quarterly tax provision and estimate of our annual effective
tax rate are subject to variation due to several factors, including variability in accurately predicting our pre-tax income or loss and the mix of
jurisdictions to which they relate, the applicability of special tax regimes, and changes in how we do business.
For the three and nine months ended September 30, 2026, the recognized benefit from income taxes resulted from the tax projection
based on the full year forecast and included benefits related to the U.S. federal research and development (“R&D”) tax credit, and certain
permanent differences, such as non-deductible stock-based compensation as well as an increase in the California valuation allowance for
California R&D tax credits.
For the three and nine months ended September 30, 2025, the recognized provision for and (benefit from) income taxes, respectively,
resulted from the tax projection based on the full year forecasted profit and included benefits related to the U.S. federal foreign-derived
intangible income (“FDII”), federal R&D tax credit, certain permanent differences, such as stock-based compensation shortfalls, and partial
release of California valuation allowance.
The effective tax rate excluding discrete items for the nine months ended September 30, 2026, as compared to the prior year, differed
primarily due to the projection that the Company will not generate the U.S. federal foreign-derived intangible income deduction in 2026 due to
the Company’s change in the full year forecast.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 27
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Liquidity and Capital Resources
Overview
From time-to-time, management and our Board of Directors (the “Board”) review our liquidity and future cash needs and may make a
decision to (1) return capital to our shareholders through a share repurchase program or dividend payout; or (2) seek additional debt or equity
financing. As of September 30, 2026, our principal sources of liquidity consisted of (i) unrestricted cash and cash equivalents of $42.5 million
that are held in cash accounts and invested in money market funds and U.S. treasury securities; (ii) investment-grade short-term and long-
term marketable debt instruments of $43.1 million that are primarily invested in U.S. treasury securities and corporate notes and bonds; and
(iii) accounts receivable, net of allowances, of $10.7 million. As of September 30, 2026, there was unrestricted cash of $0.8 million held
outside the U.S. We invest cash not needed for current operations predominantly in investment-grade, marketable debt instruments with the
intent to make such funds available for future operating purposes, as needed. Although these securities are available for sale, we generally
hold these securities to maturity, and therefore, do not currently see a need to trade these securities in order to support our liquidity needs in
the foreseeable future. We believe the risk of this portfolio to us is in the ability of the underlying companies or government agencies to cover
their obligations at maturity, not in our ability to trade these securities at a profit. Based on current projections, we believe existing cash
balances and future cash inflows from this portfolio will meet our liquidity needs for at least the next 12 months.
Credit Agreement
We entered into a credit agreement with JPMorgan Chase Bank, N.A. on December 22, 2021 (as amended, the “Credit Agreement”).
The Credit Agreement provides a committed revolving credit line of $50.0 million and includes both a revolving loan and letters of credit
(“LCs”) component. The Credit Agreement was amended on January 21, 2026 to extend the expiration date from December 21, 2026 to
January 21, 2031. The maximum allowable LCs under the credit line component of the Credit Agreement is $30.0 million. As of
September 30, 2026, the Company was in compliance with all covenants under the Credit Agreement.
See Note 6, “Lines of Credit,” of the Notes for further discussion related to the Credit Agreement.
Share Repurchase Programs
The Board, from time-to-time, has authorized share repurchase programs under which we may, at our discretion, repurchase the
Company’s outstanding common stock in the open market, or in privately negotiated transactions, in compliance with applicable state and
federal securities laws. The timing and amounts of any purchase under the share repurchase programs are based on market conditions and
other factors including price, regulatory requirements, and capital availability. We account for stock repurchases under these programs using
the cost method. As of September 30, 2026, we have cumulatively repurchased 16.2 million shares of the Company’s common stock at an
aggregate cost of $189.1 million under all share repurchase programs. The following is a discussion of the current share repurchase
program during the three and nine months ended September 30, 2026. See Note 11, “Stockholders’ Equity – Share Repurchase Programs,”
of the Notes for further discussion related to share repurchase programs and a reconciliation of the latest share repurchase plan balance.
On August 6, 2025, we announced that the Board authorized a share repurchase program under which we may repurchase our
outstanding common stock, at the discretion of management, up to $25.0 million in aggregate cost, which includes both the share value of the
acquired common stock and the fees charged in connection with acquiring the common stock (the “August 2025 Authorization”). We began
repurchasing our outstanding common stock under the August 2025 Authorization in August 2025. The August 2025 Authorization expired in
May 2026. As of September 30, 2026, we have repurchased 2,179,419 shares of our common stock at an aggregate cost of approximately
$25.0 million of which 1,792,853 shares were purchased during the nine months ended September 30, 2026 at an aggregate cost of
approximately $19.3 million. No shares were purchased during the three months ended September 30, 2026.
On May 6, 2026, we announced that the Board authorized a share repurchase program under which we may repurchase our
outstanding common stock, at the discretion of management, for up to $25.0 million in aggregate cost, which includes both the share value of
the acquired common stock and the fees charged in connection with acquiring the common stock (the “May 2026 Authorization”). We began
repurchasing our outstanding common stock under the May 2026 Authorization in May 2026. The May 2026 Authorization will expire in April
2027. As of September 30, 2026, we have repurchased 444,600 shares of our common stock at an aggregate cost of approximately
$3.7 million of which 287,700 and 444,600 shares were purchased during the three and nine months ended September 30, 2026 at an
aggregate cost of $2.4 million and $3.7 million, respectively.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 28
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Cash Flows
Nine Months Ended September 30, | |||||
2026 | 2025 | Change | |||
(In thousands) | |||||
Net cash provided by operating activities | $28,096 | $11,693 | $16,403 | ||
Net cash (used in) provided by investing activities | (9,831) | 37,012 | (46,843) | ||
Net cash used in financing activities | (23,839) | (31,417) | 7,578 | ||
Effect of exchange rate differences on cash and cash equivalents | (20) | 58 | (78) | ||
Net change in cash, cash equivalents and restricted cash | $(5,594) | $17,346 | $(22,940) | ||
Cash Flows from Operating Activities
Net cash provided by operating activities is subject to the project driven, non-cyclical nature of our business. Operating cash flow can
fluctuate significantly from reporting period to reporting period, due to the timing of receipts of large project orders. Operating cash flow may
be negative in one reporting period and significantly positive in the next. Consequently, individual reporting period results and comparisons
may not necessarily indicate a significant trend, either positive or negative.
The higher net cash provided by operating assets and liabilities for the nine months ended September 30, 2026, as compared to the
prior year, was due primarily to the following factors:
•Accounts receivable: an increase in cash provided due to an increase in collections related to revenues earned late in the fourth
quarter of 2025, partially offset by,
•Inventories: a decrease in cash provided due to cash used to build finished goods inventory.
Cash Flows from Investing Activities
Net cash (used in) provided by investing activities primarily relates to maturities and purchases of investment-grade marketable debt
instruments, and capital expenditures supporting our growth. The decrease in cash provided during the nine months ended September 30,
2026, as compared to the prior year, is primarily due to fewer maturities as well as higher purchases of marketable securities. We believe our
investments in marketable debt instruments are structured to preserve principal and liquidity while at the same time maximizing yields without
significantly increasing risk.
Cash Flows from Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2026 was lower as compared to the cash used in
financing activities in the prior year, due to lower repurchases of our common stock as well as lower exercises of common stock options.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 29
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Liquidity and Capital Resource Requirements
We believe that our existing resources and cash generated from our operations will be sufficient to meet our anticipated capital
requirements for at least the next 12 months. However, we may need to raise additional capital or incur additional indebtedness to continue
to fund our operations or to support acquisitions in the future and/or to fund investments in our latest technology arising from rapid market
adoption. These needs could require us to seek additional equity or debt financing. Our future capital requirements will depend on many
factors including the continuing market acceptance of our products, our rate of revenue growth, the timing of new product introductions, the
expansion of our R&D, manufacturing and S&M activities, and the timing and extent of our expansion into new geographic territories. In
addition, we may enter into potential material investments in, or acquisitions of, complementary businesses, services or technologies in the
future which could also require us to seek additional equity or debt financing. Should we need additional liquidity or capital funds, these funds
may not be available to us on favorable terms, or at all.
Recent Accounting Pronouncements
Refer to Note 1, “Description of Business and Significant Accounting Policies – Significant Accounting Policies,” of the Notes to
Condensed Consolidated Financial Statements in Part I, Item 1, “Financial Statements (unaudited),” of this Quarterly Report on Form 10-Q.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 30
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Item 3 — Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk may be found primarily in two areas: foreign currency and interest rates.
Foreign Currency Risk
Our foreign currency exposures are due to fluctuations in exchange rates for the U.S. dollar (“USD”) versus the British pound, Saudi
riyal, Emirati dirham, European euro, Chinese yuan, Indian rupee and Canadian dollar. Changes in currency exchange rates could adversely
affect our consolidated operating results or financial position.
Our revenue contracts have been denominated in the USD. At times, our international customers may have difficulty obtaining
the USD to pay our receivables, thus increasing collection risk and potential bad debt expense.
In addition, we pay many vendors in foreign currency and, therefore, are subject to changes in foreign currency exchange rates. Our
international sales and service operations incur expense that are denominated in foreign currencies. This expense could be materially
affected by currency fluctuations. Our international sales and services operations also maintain cash balances denominated in foreign
currencies. To decrease the inherent risk associated with translation of foreign cash balances into our reporting currency, we do not maintain
excess cash balances in foreign currencies.
We have not hedged our exposure to changes in foreign currency exchange rates because expenses in foreign currencies have been
insignificant to date and exchange rate fluctuations have had little impact on our operating results and cash flows. In addition, we do not
have any exposure to the Russian ruble.
Interest Rate and Credit Risks
The primary objective of our investment activities is to preserve principal and liquidity while at the same time maximizing yields without
significantly increasing risk. We invest primarily in investment-grade short-term and long-term marketable debt instruments that are subject
to counter-party credit risk. To minimize this risk, we invest pursuant to an investment policy approved by the Board. The policy mandates
high credit rating requirements and restricts our exposure to any single corporate issuer by imposing concentration limits.
As of September 30, 2026, our investment portfolio of $43.1 million, in investment-grade marketable debt instruments, such as U.S.
treasury securities, and corporate notes and bonds, are classified as either short-term and/or long-term investments on our Condensed
Consolidated Balance Sheets. These investments are subject to interest rate fluctuations and a decrease in market value to the extent
interest rates increase. To minimize the exposure due to adverse shifts in interest rates, we maintain investments with a weighted average
maturity of approximately four months. As of September 30, 2026, a hypothetical 1% increase in interest rates would have resulted in
approximately $0.1 million decrease in the fair value of our investments in marketable debt instruments as of such date.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 31
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Item 4 — Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Interim President and Chief Executive Officer and our Interim Chief Financial Officer,
have evaluated the effectiveness of our disclosure controls and procedures as defined in Rule 13a-15(e) of the Securities Exchange Act of
1934 as of the end of the period covered by this report.
Based on that evaluation, our Interim President and Chief Executive Officer and our Interim Chief Financial Officer have concluded
that, as of September 30, 2026, our disclosure controls and procedures were effective.
Changes in Internal Controls
There were no changes in our internal control over financial reporting during the period covered by this report that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 32
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PART II — OTHER INFORMATION
Item 1 — Legal Proceedings
We have been, and may be from time to time, involved in legal proceedings or subject to claims incident to the ordinary course of
business. We are not presently a party to any legal proceedings that we believe are likely to have a material adverse effect on our business,
financial condition, or operating results. Regardless of the outcome, such proceedings or claims can have an adverse impact on us because
of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be
obtained.
Item 1A — Risk Factors
Except as noted below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, “Risk Factors,”
in the 2025 Annual Report.
Our Desalination segment revenues largely depend on the construction of new large-scale desalination plants and the
retrofit of existing desalination plants, and as a result, our operating results have historically experienced, and may continue to
experience, significant variability due to volatility in capital spending, availability of project financing, project timing, execution, war
or other hostilities and other factors affecting the broader water desalination industry.
We currently derive the majority of our Desalination segment revenues from sales of energy recovery products and services used in
newly constructed, large-scale desalination plants and the retrofit of existing desalination plants, particularly in dry or drought-ridden regions
of the world. The demand for our products used in the Desalination segment may decrease if the construction of these large-scale
desalination plants or the retrofit of existing plants declines for any reason, including, any global or regional economic downturns, worsening
global or regional political conflicts, war or other hostilities, such as the 2026 conflict in Iran and escalating tensions in the Middle East,
worsening regional conditions, changing government priorities, or the impact of any global or regional conflicts.
Other factors that could affect the number and capacity of large-scale desalination plants built or the timing of their completion
include the availability of required engineering and design resources; availability of credit and other forms of financing; the health of the global
economy; inflation rates; changes in government regulation, trade policy and tariffs, permitting requirements, or priorities; and reduced capital
spending for water desalination solutions. Each of these factors could result in reduced or uneven demand for our products. Pronounced
variability, complete cancellations or delays in the construction of such plants or reductions in spending for desalination in general could
negatively impact our Desalination segment sales, which in turn could have an adverse effect on our entire business, financial condition, or
results of operations, and make it difficult for us to accurately forecast our future sales.
A sustained downturn in the economy or global unrest could impact the future of new, and the retrofit of existing,
desalination plants, and the treatment of various wastewater verticals, which could result in decreased demand for our products
and services.
The demand for our products and services depends primarily on the continued construction of new large-scale desalination plants,
the retrofit of existing plants, and the construction of wastewater treatment facilities, particularly in the countries that are part of the Gulf
Cooperation Council, China, Taiwan and India. Weak economic conditions, global uncertainty including the continuing conflicts in Ukraine,
the continuing 2026 conflict in Iran and escalating conflicts in the Middle East, as well as the impact of increased inflation and a potential
stagflation resulting from such conflicts may have a negative economic impact on these and other countries, which may impact the levels of
spending on, timing of, delays to, and availability of, project financing for new desalination and retrofit plant projects. The inability of our
customers to secure credit or financing for these projects, may result in the postponement or cancellation of these projects. In addition, the
change in government priorities and/or their reduction in spending for water treatment projects could result in decreased demand for our
products and services, which could have an adverse effect on our business, financial condition or results of operations.
Uncertainty in the global geopolitical landscape and macro-economic environment may impact our operations outside the
U.S., including in the Middle East where many of our water megaprojects are planned.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 33
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We conduct our business on a global basis. Our products are sold in numerous countries worldwide, with a large percentage of our
sales generated outside the U.S., specifically in the Middle East and Africa, and Asian markets which provide a significant portion of our total
revenue. Therefore, we are exposed to, and impacted by, global macroeconomic factors, U.S. and foreign government policies, including
trade and tariff policies, and foreign exchange fluctuations. There is uncertainty surrounding macroeconomic factors in the U.S. and globally
characterized by the supply chain environment, inflationary pressure, interest rate volatility, and labor shortages. These global
macroeconomic factors, coupled with the U.S. political climate, political unrest internationally, and conflicts in Europe and the Middle East,
such as the continuing 2026 conflict in Iran and Iran’s response to attacks by the United States and Israel, have created global economic and
political uncertainty, and have impacted demand for certain of our products. Further escalation of the conflict could heighten inflationary
pressures on our input costs, adversely affect global financial markets, increase currency exchange rate volatility, and elevate interest rates,
which could increase the cost of future financing. In addition, tariffs imposed by the U.S. and other countries have increased, and may
continue to increase, our costs, and we have experienced increased costs related to tariffs during the nine months ended September 30,
2026. Changes to existing tariffs, the imposition of new tariffs, or retaliatory trade measures by other countries could further increase our
costs, affect our pricing, disrupt our supply chain, or reduce demand for our products. While the impact and longevity of these factors remain
uncertain, we are constantly evaluating the extent to which these factors will impact our business, financial condition, or results of operations.
Over the long-term, demand for our energy recovery devices could correlate to global macroeconomic and geopolitical factors. Any
disruption to the economic factors and regulations in these regions, which remain uncertain, may adversely affect our results of operations
and financial condition.
In addition, there is uncertainty as to the position the U.S. will take with respect to world affairs. This uncertainty may include such
issues as the U.S. support for existing treaty and trade relationships with other countries, including, notably, China, Mexico and Canada. This
uncertainty, together with other recent key global events, such as currency control regulations and tariff regimes (including changes to, and
legal challenges affecting, U.S. tariffs and any retaliatory tariffs by other countries), economic sanctions and export controls, trade
restrictions, ongoing terrorist activity, and hostilities in the Middle East, may adversely impact (i) the ability or willingness of non-U.S.
companies to transact business with U.S. companies, including with us; (ii) our ability to transact business in other countries where we have
existing or prospective customer relationships, including the Middle East, where many of the water megaprojects are planned; (iii) regulation
and trade agreements affecting U.S. companies; (iv) global stock markets (including The NASDAQ Global Select Market on which our
common shares are traded); and (v) general global economic conditions. Furthermore, the conflicts in Europe and the Middle East have
resulted in worldwide geopolitical and macroeconomic uncertainty, and we cannot predict how these conflicts will evolve or their timing. If
these conflicts continue for a significant time, further expand to other countries or regions or cannot be stabilized by any diplomatic efforts,
they could have additional adverse effects on macroeconomic conditions that may have a direct adverse impact on our business and/or our
supply chain, business partners or customers in the broader region. All of these factors are outside of our control, but may nonetheless
cause us to adjust our strategy in order to compete effectively in global markets.
We face risks associated with our first international manufacturing facility in Saudi Arabia.
We are investing significant resources to establish and operate our first manufacturing facility outside the United States, located in
Saudi Arabia. The successful construction, commissioning, and operation of this facility are subject to a variety of risks and uncertainties that
could materially and adversely affect our business, financial condition, results of operations, and cash flows.
The facility is currently under development and is expected to begin operations in 2027. Establishing a new manufacturing
operation in a foreign jurisdiction presents challenges that we have not previously encountered at this scale, including obtaining and
maintaining licenses, permits, and regulatory approvals; complying with local labor, tax, environmental, health and safety, customs, and other
legal requirements; hiring, training, and retaining a skilled local workforce; and implementing our manufacturing processes, quality systems,
and internal controls in a new operating environment. Any delays, cost overruns, construction deficiencies, supply chain disruptions, labor
shortages, or difficulties in commissioning equipment could postpone the facility’s operational readiness, increase our costs, and delay
anticipated benefits.
Our operations in Saudi Arabia also expose us to additional geopolitical, economic, and operational risks. These risks include
changes in government policies, trade regulations, local content requirements, taxation, foreign investment rules, import and export controls,
sanctions regimes, currency restrictions, regional political conflicts, war or other hostilities, such as the 2026 conflict in Iran and escalating
tensions in the Middle East. Any deterioration in regional stability, changes in regulatory frameworks, or actions by governmental authorities
could adversely affect the facility, our employees, our suppliers, or our customers and could result in increased costs, operational disruptions,
or limitations on our ability to conduct business in the region.
Further, the transfer of manufacturing knowledge, proprietary processes, and technology to a new foreign operation may increase
the risk of unauthorized disclosure, misuse, or infringement of our intellectual property. We may also face challenges in maintaining
consistent oversight, cybersecurity protections, internal controls, and compliance programs across geographically dispersed operations.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 34
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If we are unable to successfully construct, commission, ramp, and operate the Saudi Arabian facility on the timeline we expect, or if
the facility fails to achieve its anticipated operational, financial, or strategic objectives, our growth prospects, competitive position, operating
results, and long-term business strategy could be materially and adversely affected.
Because the facility is not yet operational, there is substantial uncertainty regarding the timing and effectiveness of the
commissioning and ramp-up process. Initial production volumes, labor productivity, manufacturing yields, quality metrics, and operating
efficiencies may fall short of expectations. We may also encounter unforeseen technical, engineering, infrastructure, equipment integration, or
supply chain issues during startup. Any such challenges could require additional capital expenditures, delay customer deliveries, increase
operating costs, and adversely affect our ability to achieve expected returns on our investment.
Item 2 — Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
None.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
May 2026 Authorization
On May 6, 2026, we announced a share repurchase program (the “May 2026 Authorization”). The following table summarizes the
stock repurchase activity under the May 2026 Authorization during the three months ended September 30, 2026.
Period | Total Number of Shares Purchased | Average Price Paid per Share(1) | Total Number of Shares Purchased as Part of Publicly Announced Program | Maximum Number of Shares or Approximate Dollar Value(1) That May Yet be Purchased Under the Program | ||||||
(In thousands) | ||||||||||
July 1 – July 31, 2026 | 164,400 | $8.65 | 164,400 | $22,241 | ||||||
August 1 – August 31, 2026 | 51,700 | $8.70 | 51,700 | $21,791 | ||||||
September 1 – September 30, 2026 | 71,600 | $6.94 | 71,600 | $21,295 |
(1)Including commissions
Item 3 — Defaults Upon Senior Securities
None.
Item 4 — Mine Safety Disclosures
Not applicable.
Item 5 — Other Information
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 35
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10b5-1 Plans
During the three months ended September 30, 2026, no director or officer (within the meaning of Rule 16a-1(f) under the Securities
Exchange Act of 1934, as amended) has adopted terminated
K).
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 36
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Item 6 — Exhibits
A list of exhibits filed or furnished with this report or incorporated herein by reference is found in the Exhibit Index below.
Exhibit Number | Exhibit Description | |
31.1* | Certification of Principal Executive Officer, pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
31.2* | Certification of Principal Financial Officer, pursuant to Exchange Act Rule 13a-14(a) or 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
32.1** | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
101 | Inline XBRL Document Set for the consolidated financial statements and accompanying notes in Part I, “Financial Information” of this Quarterly Report on Form 10-Q. | |
104 | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. | |
*Filed herewith.
**The certification furnished in Exhibit 32.1 is not deemed “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that
section, nor shall they be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
Energy Recovery, Inc. | Q3'2026 Quarterly Report (Form 10-Q) | 37
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
ENERGY RECOVERY, INC. | |||||
Date: | November 4, 2026 | By: | /s/ ALEXANDER J. BUEHLER | ||
Alexander J. Buehler | |||||
Interim President and Chief Executive Officer | |||||
(Principal Executive Officer) | |||||
Date: | November 4, 2026 | By: | /s/ AIDAN RYAN | ||
Aidan Ryan | |||||
Interim Chief Financial Officer | |||||
(Principal Financial Officer) | |||||